CONSOLIDATED GAS ELECTRIC L. & P. CO. v. UNITED RYS. & E. CO.

• Decision Date: 02 April 1935
• Docket Number: No. 3823.,3823.
• Citation: 76 F.2d 535
• Parties: CONSOLIDATED GAS ELECTRIC LIGHT & POWER CO. OF BALTIMORE v. UNITED RAILWAYS & ELECTRIC CO. OF BALTIMORE et al.
• Court: U.S. Court of Appeals — Fourth Circuit

76 F.2d 535 (1935)

CONSOLIDATED GAS ELECTRIC LIGHT & POWER CO. OF BALTIMORE v. UNITED RAILWAYS & ELECTRIC CO. OF BALTIMORE et al.

No. 3823.

Circuit Court of Appeals, Fourth Circuit.

Argued February 4, 1935.

Decided April 2, 1935.

Charles Markell, of Baltimore, Md. (Cook & Markell, of Baltimore, Md., on the brief), for appellant.

Charles McHenry Howard and Edgar Allan Poe, both of Baltimore, Md. (Joseph C. France, of Baltimore, Md., on the brief), for appellees.

Before PARKER and SOPER, Circuit Judges, and McCLINTIC, District Judge.

PARKER, Circuit Judge.

This is an appeal from an order in the receivership proceedings of the United Railways & Electric Company of Baltimore, Md., and its subsidiary corporations, in which the court below passed upon two claims, one for electric power furnished those corporations prior to receivership, and one for power furnished the receivers. The prereceivership claim was for $509,899.65 for power furnished within the six months immediately preceding receivership, calculated at the rate of 9½ mills per kilowatt-hour, without allowance for payments on account or interest. The claim against the receivers was for power furnished from January 6, 1933, to April 30, 1934, upon which the claimant had been paid, at the rate of 9½ mills per k. w. h., the sum of $1,678,977.77, subject, however, to an agreement for adjustment in the event that the court should hold this rate improper in passing upon the contract under which the power was furnished. The court held that the original contract between the claimant and the companies in receivership had been abrogated by mutual consent, that the claims must be adjudicated upon the basis of implied contract, and that a reasonable price for the power furnished was 7½ mills per k. w. h. The prereceivership claim was therefore allowed in the sum of $402,552.55, with priority accorded it under the six months' rule, and the claimant was ordered to refund $353,469.00 of the amount collected from the receivers on the 9½ mills per k. w. h. basis. It was further ordered that future payments for power by the receiver until further order of court should be on the basis of 7½ mills, unless the Public Service Commission of Maryland in the exercise of its rate-making power should establish a different rate. From this order the claimant, the Consolidated Gas Electric Light & Power Company has appealed.

Prior to 1921, the United Railways & Electric Company of Baltimore, which we shall refer to hereafter as "United," and which is sometimes referred to in the contract from which we shall quote as "Railways," was generating electric current in its own powerhouse at Baltimore and had a fifteen-year contract, which expired in 1926, with the Pennsylvania Water & Power Company for the supply of hydrogenerated current at 3.3 mills per k. w. h. The claimant, which we shall refer to hereafter as "Consolidated" and which is referred to in the contract as "Electric," was engaged in the manufacture and sale of electric current in Baltimore. In January, 1921, these two corporations entered into a contract, under the terms of which Consolidated purchased from United its power producing plant at the price of $4,000,000, took over its contract for purchasing current from the Pennsylvania Water & Power Company, and agreed to sell to United all of the electric current which United might need at prices to be fixed in accordance with the rather complicated standards provided by the contract. This contract was filed with the Public Service Commission of Maryland which approved it, without, however, passing upon the rates which it prescribed. The contract bound the Consolidated to furnish and the United to accept and pay for electric current over a period of fifty years. For the first five years of this period prices were based upon the contract with the Pennsylvania Company and no controversy has arisen with regard thereto. Prices after the expiration of the Pennsylvania contract were to be fixed in accordance with article XII of the contract, which is as follows:

"During the term of this contract, after the first period ending February 7, 1926, all power and energy required by Railways is to be furnished by Electric, and the price to be paid by Railways to Electric for such power and energy is to be based upon the total cost to Electric of producing power and energy in its generating stations, including fixed charges covering interest (equal to the actual cost of money) on capital invested in said generating stations, depreciation, taxes and insurance, together with such income, sale, or similar taxes as may be assessed against Electric by State and National Governments, as applied to the sale of power and energy to Railways, or the income received by Electric therefrom, and through the purchase of power and energy from power, or any other source of supply mutually agreed upon, and an amount added to Railways' share of said total cost to cover a reasonable profit to Electric, excluding in the calculation of said profit all of said income, sale, or similar taxes, as hereinafter provided. The apportionment to Railways of said total cost is to be in proportion to Railways' demand for power and consumption of energy in the ratio which Railways' consumption of energy bears to the total energy produced and purchased by Electric.

"It is the intent in establishing the price to be paid for power and energy by Railways that Railways and Electric shall both benefit by the production and supply by Electric of all the power and energy required by Railways and Electric, and that the total cost of energy and power shall be divided fairly between the said two parties.

"On the assumption that the production of the entire supply of energy and power by Electric will result in a lower cost of production than that which would result from the independent operation by Railways and Electric, it is agreed that on the Railways' share of the total cost of operation, apportioned to Railways as in the foregoing paragraph, Electric should receive a profit of ten per cent.

"In the event, however, that under the operation by Electric of the entire production and supply, with the aforesaid apportionment of costs the cost to Electric, including all fixed and operating charges, for Electric's own requirements for power and energy should exceed that which the said supply for Electric would cost were Electric to continue separate operation, then Railways shall pay in addition to the said apportionment an amount which will result in a net cost to Electric for its required portion of the total supply, which shall not be greater than the cost of the same supply were independent operation by Electric continued, and on this greater apportionment of cost to Railways, Railways shall likewise pay to Electric a profit of ten per cent.

"A complete operating agreement for fixing a definite basis for prices for power and energy based upon the general understanding outlined in this Article shall be entered into promptly hereafter by the parties hereto, such agreement to be attached hereto and made a part hereof, and marked Exhibit B.

"In establishing prices to comply with the foregoing conditions as to costs and apportionments, periods of less than one year shall not be considered, and it is also understood that the best possible operating conditions should be maintained by mutual advice and co-operation."

The operating agreement, referred to in this paragraph, provided that tentative billing rates should be determined in January of each year for the current calendar year, that payments should be made monthly on the basis of this tentative billing, and that at the end of the year there should be an adjustment "to correct for deviation of actual from estimated conditions." After each annual adjustment a revised estimate of rates for the ensuing year was required to be made, which was to apply as tentative billing rates for that year.

Article XIV of the contract contains a "most favored customer" clause in the following language: "And, furthermore, Electric does hereby guarantee to Railways that it will always give Railways the benefit of the most favorable rate given to any large customer, considering conditions of service."

Article XXI headed "Economical Generation of Energy" is as follows: "As the controlling reason and motive for Railways in entering into this agreement with Electric is its belief that by efficient and competent management Electric will be able to furnish it with power and energy at a cost less than if produced in its own independent stations, it is hereby acknowledged by Electric that it will use all reasonable diligence, intelligence and foresight in the operation of its owned, leased or controlled stations, that as to additional equipment it will avail itself at all times of the latest developments in the art of generating power and energy, and that in no event is the price to be paid by Railways for power and energy to exceed that obtained by the best of practice in modern steam and hydroelectric stations under similar conditions."

Along with Article XXI, Article III, entitled "Termination of Contract" should be considered. That article is as follows: "Should the rate or price paid by Railways for power and energy substantially exceed at any time during the running of this agreement, the price at which Railways might be able to demonstrate its ability to produce or purchase its entire requirements of power and energy under the then existing processes of the art, and in addition thereto, should Electric fail to avail itself for the joint benefit of the parties hereto of any opportunity to produce or purchase power and energy under conditions which would operate materially to reduce the price paid by Railways under the conditions of this agreement, then Railways may, if it so elects, terminate this contract at any time after February 7, 1935, provided, however, that not less than three...